Marin commercial real estate market on the rise

Once-vacant storefronts, office buildings and business complexes are starting to fill up again and commercial rents are going up in Marin, more positive signs for 2014 as the county's economy continues to improve.

While 20 percent of Marin's commercial real estate space is still vacant, vacancies are steadily decreasing and the average rent for top-of-the-line commercial space jumped nearly 6 percent to $2.78 a square foot in the third quarter compared with the previous year, said Brian Eisberg, senior vice president at Cornish & Carey Commercial.

Also, two high-tech office buildings in Novato's Hamilton Landing signed new major leases in November, a move that will bring many new workers into two converted hangars there, according to Barker Pacific Group, redeveloper of Hamilton Landing.

"Vacancies declined this year and rents are going up," said Eisberg. "In the second quarter, the (commercial) vacancy rate was 21.5 percent, and in the third quarter it was 20.3 percent. I predict it will go down below 20 percent in the fourth quarter."

The market in general is "healthier than it looks," Eisberg added, because while space is filling up across the board, there are two big complexes that are still empty. "If you took out those buildings, the Fireman's Fund building and the Marin Commons Building at 1650 Los Gamos, we would have a healthy vacancy rate of around 12 percent."

As commercial space became scarcer in 2013, the law of supply and demand kicked in, Eisberg said, sending rents to $2.78 a square foot in the third quarter. When the market peaked in 2007 right before the recession, rents were $3 a square foot.

"We (Marin) have definitely recovered (to pre-recession levels) from Larkspur Landing south; in that area, we have had pretty much full recovery. Central San Rafael has recovered 90 percent. Terra Linda has recovered 75, 80 percent, and Novato still has its work cut out for it," said Eisberg.

"(Rents in) Southern Marin are up huge. That's how it always happens. The closer to the bridge, the higher the rent," the senior vice president said.

Eisberg, himself a Novato resident, said that "substantially we have had year-over-year rent increases in the last two years; the only place that hasn't had much recovery in rental rates is Novato. But now that Terra Linda and north San Rafael are seeing increases, Novato is next. Either mid-year or toward the end of the year, Novato will see some increases."

The senior vice president said that Hamilton Landing rents are the exception in Novato, having already seen some increases. The business complex has been highly successful of late; in November, its redeveloper announced major new leases in two of the buildings.

"We signed new leases with Raptor Pharmaceutical and an architectural group known as EDG," said Haden Ongaro, senior vice president and managing director of Cornish & Carey Commercial. Raptor, a biopharmaceutical company focusing on rare diseases, added 10,892 square feet to its 30,989 square feet in Hangar 7.

Also, Novato-based game company 2K leased 45,692 square feet in Hangar 9 to house additional development and publishing resources. The new lease renewed the company's existing 19,600 square feet and added 26,092 square feet as an expansion.

"They (all three companies) were taking the space Disney left," Ongaro said, referring to a hole of about 120,000 square feet left when Disney's ImageMovers Digital Group shuttered a few years ago.

Other 2013 highlights include Basin Street Properties' acquisition of Shoreline Office Center for $22.25 million, announced in October, and Drake's Landing Office park coming on the market, Ongaro said.

"There's a lot of shifts about to occur in commercial real estate, so there will be new money, new energy, new excitement coming to the market," Ongaro said. "When people buy buildings, they usually want to fix them up and put their own personal touches on them. I think that's very exciting."